INCOME TAX OFFICER, THANE vs. SAMP FURNITURE, THANE

On the facts and in circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made on account of deposit of Specified Bank Notes (SBN) of Rs.4,00,00,000/- during the month of October 2016 only, when the AO had established that no such trend was observed during the immediate preceding and succeeding year.

On the facts and in circumstances of the case and in law, the Ld. CIT(A)) has erred in deleting the addition made on account of deposit of Specified Bank Notes (SBN) without considering the fact that the assessee failed to substantiate the amount of cash-in-hand as on 31/10/2016 with any satisfactory evidences.

On the facts and in circumstances of the case, and in law, the Ld. CIT(A)) has erred in deleting the addition made on account of deposit of Specified Bank Notes (SBN) without considering the fact that the assessee had generated a new series of sale bills specifically for the month of October 2016. 5. On the facts and in circumstances of the case and in law, the Ld. CIT(A)) has erred in deleting the addition made on account of deposit of Specified Bank Notes (SBN) without considering the fact that the new series of sale bills in the month of October 2016 were specifically in the range of Rs.31,000/- to Rs.42,000/- only, despite the fact that there were range of items varying from Rs.3,000/- to Rs.2,00,000/-

On the facts and in circumstances of the case and in law, the Ld. CIT(A)) has erred in deleting the addition made on account of deposit of Specified Bank Notes (SBN) without considering the fact that during the survey action u/s.133A carried out by the 1.T.O. (I&CI), Thane on 11.01.2017, it was observed that the ratio of cash sales to total sales was at 35% and 39% during FY 2013-14 and FY 2014-15 respectively which rose to 78% during the FY 2016-17 and 93% specifically in the month of October 2016. 7. On the facts and in circumstances of the case and in law, the Ld. CIT(A)) has erred in deleting the addition made on account of deposit of Specified Bank Notes (SBN) without considering the fact that during the survey action u/s.133A carried out by the 1.T.O. (I&CI), Thane on 11.01.2017, it was found that even though there were 1123 sale bills of one series from April 2016 to September 2016, however, there were 923 sale bills of new series during the month of October 2016 alone and that too 100% in cash. 8. The order of the Ld.CIT(A) may be vacated & the matter be set aside to the table of the Assessing Officer.”

The assessee is a company engaged in the business of trading in furniture and furniture products. The assessee filed the return of income for AY 2017-18 on 06.11.2017 declaring total income of Rs. 20,09,970/-. The case was selected for scrutiny for the reason that there was a huge cash deposit during demonetization period. The AO called on the assessee to explain the source for the cash deposit in the bank account. The assessee submitted that the source for the cash deposit was out of retail sales made and cash in hand balance. The assessee further submitted that four showrooms catering to customers in Kalyan, Vashi, Vasai and Nasik were shout down due to poor sales and owing to large stock unsold stock a discount sale was announced. The assessee also submitted that the stock clearance sales boosted the sale of furniture which resulted in huge cash sales. The assessee produced various details including the cashbook, ledger, financial statements, etc. including the other details called for by the AO. The AO did not accept the submissions of the assessee stating that no documentary evidences with regard to closing of showrooms or the stock clearance sales were produced. The AO further held that the cash sales during the period before demonetization are not commensurate with the cash sales during the same period in the earlier years. The AO also recorded certain other discrepancies such as the number of cash sales bills, sales bills of new series, etc. Accordingly, the AO treated the cash deposited as unexplained representing unaccounted income under section 69A of the Act. Aggrieved the assessee filed further appeal before the CIT(A). Before the CIT(A), the assessee reiterated the submissions made before the AO along with other documentary evidences. The CIT(A) after considering the submissions of the assessee and the documentary evidences deleted the addition made by the AO by holding that “It is observed that the Appellant was having four showrooms at different locations namely Kalyan, Vashi, Vasi, and Nashik and due to poor sales the showroom at Vashi, Vasai, Nashik were shut. Owing to the large stock available at these locations, the stock clearing sale was announced at nominal price. Due to the shop offering heavy discount, huge sales were generated during the period of October due to the festive season of Diwall. The Appellant has declared the said spike in sales in its Income Tax Returns and paid applicable taxes on the same. To account for the sales during the period of clearance sale, a fresh series of bills were issued. The Appellant has also furnished Daily Cash Summary, Monthly Cash Summary for the entire year, Sales register up to the date of cash deposit, sales register monthly summary, summary of cash and credit sales and purchases for the past five years, copy of Monthly VAT/ CST returns and task payment challans. The cash sales made by the Appellant formed part of sales of Rs. 8,64,91,021/- disclosed in the duly Audited P&L A/c of A.Y. 2017-18. The entire amount deposited in the bank is already offered to tax in the form of cash sales, which is evidenced by the audited books of accounts, sales register, invoices, VAT returns and VAT audit report and other documents filed in the course of assessment proceedings. The sald books of accounts are not rejected by the AO. Once the books of accounts are accepted, the genuineness of sales already offered to tax cannot be doubted merely on surmises and conjectures and on the basis of probabilities.

The ld AR on the other hand submitted that the assessee has submitted all evidences in support of the increase in cash sales which have been verified and accepted by the CIT(A). The ld AR further submitted that the AO has not rejected the books of accounts including the sales figure and therefore treating the cash sales which is already included in the business income of the assessee as unexplained would result in double taxation. The ld AR drew our attention to the documents evidencing the closure branch in Vasai and the discount sales announced during Diwali. The ld AR argued that when the assessee has discharged the onus with supporting documents, the AO could not have made the addition under section 69A assessee. According the ld AR supported the order of CIT(A).

We heard the parties and perused the material on record. The assessee during the demonetization period deposited a sum of Rs. 4 crores in Specified Bank Notes (SBN) into the bank account of the assessee. The assessee submitted before the AO that the source for said cash is from the cash sales generated from the stock clearance sale due to closure of certain showrooms of the assessee. The AO did not accept the submissions and made addition treating the cash deposited as unexplained income in the hands of the assessee under section 69A of the Act. The CIT(A) gave relief to the assessee considering the various documentary evidences submitted and the submissions made by the assessee. On perusal of the details submitted by the assessee, we notice that the assessee has submitted daily cash summary, monthly cash summary, sales register, summary of cash sales, copy of monthly VAT / CST returns, audited financial statements including the Tax Audit Report (TAR), etc before the lower authorities (page 1 to 285 of PB). During the course of hearing the ld. AR drew our attention to the letter dated 26.09.2016 written to the Sales Tax Authority regarding the closure of showroom in Vasai (page 288 & 289 of paper book) . The ld. AR also drew our attention to the ledger account of rent and electricity charges of Vasai showroom to substantiate that the showroom was closed in September (page 286 & 287of paper book). The ld. AR also brought to our attention that there was a survey on 11.01.2017 by the Income Tax Authorities and that no discrepancy was found during the course of survey. It is also brought to our attention that there was a sales tax survey in August 2016 and even during the said survey no discrepancies were found. From the perusal of the documents submitted by the assessee before the lower authority, we notice that the assessee has recorded cash sales and the cash generated out of cash sales is deposited into the bank account. We further notice that the sales including cash sales are declared in the VAT returns which have been accepted without finding any discrepancies. We also notice that the AO has accepted that the assessee does not have any other source other than the business income as declared in the return and that the purchases are also not rejected. In our considered view when the AO has accepted the business profits including the cash sales which is explained as a source for cash deposit then no addition can be made towards unexplained income. In assessee's case we notice that the AO has not questioned the business profit declared by the assessee and has not recorded any adverse findings rejecting the books of accounts. From the perusal of the AO's order we notice that the addition under section 69A is made for the reason that the assessee has not explained the source of cash deposit to the satisfaction of the AO. In this regard it is relevant to look at the provisions of section 69A which reads as under -

From the above it is clear that when an assessee is in possession of money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, maintained by him for any source of income then the addition under section 69A could be made. In the order of the AO it is noticed the provisions have been analysed in detail by the AO. However the AO has not considered the fact the cash sales has been accounted by the assessee deposited into the bank account. As already stated, the AO has not rejected the sales declared by the assessee and has not rejected the books of accounts also. Therefore, we see merit in the submission of the assessee that when the cash sales is accepted then the cash deposit generated out of the said cash sales cannot be treated as unexplained under section 69A of the Act. In view of this discussion, we are of the considered view that there is no infirmity in the order of the CIT(A) in deleting the addition made by the AO.

In result, the appeal of the revenue is dismissed.